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2010 Electronic Tax Filing

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2010 Electronic Tax Filing

2010 electronic tax filing 3. 2010 electronic tax filing   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. 2010 electronic tax filing Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. 2010 electronic tax filing Certain contracts held by a charitable remainder trust. 2010 electronic tax filing Excise Taxes. 2010 electronic tax filing Indoor tanning services. 2010 electronic tax filing Application for Recognition of ExemptionPolitical activity. 2010 electronic tax filing Private delivery service. 2010 electronic tax filing Amendments to organizing documents required. 2010 electronic tax filing How to show reasonable action and good faith. 2010 electronic tax filing Not acting reasonably and in good faith. 2010 electronic tax filing Prejudicing the interest of the Government. 2010 electronic tax filing Procedure for requesting extension. 2010 electronic tax filing More information. 2010 electronic tax filing Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. 2010 electronic tax filing Grass roots expenditures. 2010 electronic tax filing Lobbying nontaxable amount. 2010 electronic tax filing Grass roots nontaxable amount. 2010 electronic tax filing Organization that no longer qualifies. 2010 electronic tax filing Tax on organization. 2010 electronic tax filing Tax on managers. 2010 electronic tax filing Taxes on organizations. 2010 electronic tax filing Taxes on managers. 2010 electronic tax filing Political expenditures. 2010 electronic tax filing Correction of expenditure. 2010 electronic tax filing Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. 2010 electronic tax filing Religious. 2010 electronic tax filing Charitable. 2010 electronic tax filing Scientific. 2010 electronic tax filing Testing for public safety. 2010 electronic tax filing Literary. 2010 electronic tax filing Educational. 2010 electronic tax filing Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). 2010 electronic tax filing The prevention of cruelty to children or animals. 2010 electronic tax filing To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. 2010 electronic tax filing A trust is a fund or foundation and will qualify. 2010 electronic tax filing However, an individual or a partnership will not qualify. 2010 electronic tax filing Examples. 2010 electronic tax filing   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. 2010 electronic tax filing Child care organizations. 2010 electronic tax filing   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. 2010 electronic tax filing Instrumentalities. 2010 electronic tax filing   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). 2010 electronic tax filing Examples of a qualifying instrumentality might include state schools, universities, or hospitals. 2010 electronic tax filing However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. 2010 electronic tax filing A state or municipality itself does not qualify for exemption. 2010 electronic tax filing Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. 2010 electronic tax filing Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. 2010 electronic tax filing Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. 2010 electronic tax filing Fundraising events. 2010 electronic tax filing   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. 2010 electronic tax filing This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. 2010 electronic tax filing   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. 2010 electronic tax filing If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. 2010 electronic tax filing You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. 2010 electronic tax filing See Disclosure of Quid Pro Quo Contributions in chapter 2. 2010 electronic tax filing Exemption application not filed. 2010 electronic tax filing   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. 2010 electronic tax filing Separate fund—contributions that are deductible. 2010 electronic tax filing   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. 2010 electronic tax filing   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. 2010 electronic tax filing A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. 2010 electronic tax filing Personal benefit contracts. 2010 electronic tax filing   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. 2010 electronic tax filing   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. 2010 electronic tax filing Certain annuity contracts. 2010 electronic tax filing   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). 2010 electronic tax filing Certain contracts held by a charitable remainder trust. 2010 electronic tax filing   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. 2010 electronic tax filing Excise tax. 2010 electronic tax filing   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. 2010 electronic tax filing The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. 2010 electronic tax filing Excise Taxes. 2010 electronic tax filing   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. 2010 electronic tax filing Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. 2010 electronic tax filing Indoor tanning services. 2010 electronic tax filing   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. 2010 electronic tax filing For more information, go to IRS. 2010 electronic tax filing gov and select Affordable Care Act Tax Provisions. 2010 electronic tax filing Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. 2010 electronic tax filing For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. 2010 electronic tax filing See the organization headings that follow for specific information your organization may need to provide. 2010 electronic tax filing Form 1023. 2010 electronic tax filing   Your organization must file its application for recognition of exemption on Form 1023. 2010 electronic tax filing See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. 2010 electronic tax filing Some organizations are not required to file Form 1023. 2010 electronic tax filing See Organizations Not Required To File Form 1023, later. 2010 electronic tax filing    Additional information to help you complete your application can be found online. 2010 electronic tax filing Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. 2010 electronic tax filing See Exemption Requirements - Section 501(c)(3) Organizations. 2010 electronic tax filing   Form 1023 and accompanying statements must show that all of the following are true. 2010 electronic tax filing The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. 2010 electronic tax filing ) specified in the introduction to this chapter. 2010 electronic tax filing No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. 2010 electronic tax filing You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. 2010 electronic tax filing The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. 2010 electronic tax filing See Political activity, next, and Lobbying Expenditures , near the end of this chapter. 2010 electronic tax filing Political activity. 2010 electronic tax filing   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). 2010 electronic tax filing Such participation or intervention includes the publishing or distributing of statements. 2010 electronic tax filing   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. 2010 electronic tax filing Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. 2010 electronic tax filing Effective date of exemption. 2010 electronic tax filing   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. 2010 electronic tax filing These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. 2010 electronic tax filing If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. 2010 electronic tax filing Otherwise, exemption will be recognized only from the date of receipt. 2010 electronic tax filing The date of receipt is the date of the U. 2010 electronic tax filing S. 2010 electronic tax filing postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. 2010 electronic tax filing Private delivery service. 2010 electronic tax filing   If a private delivery service designated by the IRS, rather than the U. 2010 electronic tax filing S. 2010 electronic tax filing Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. 2010 electronic tax filing The following private delivery services have been designated by the IRS. 2010 electronic tax filing DHL Express (DHL): DHL “Same Day” Service. 2010 electronic tax filing Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. 2010 electronic tax filing United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 2010 electronic tax filing M. 2010 electronic tax filing , UPS Worldwide Express Plus, and UPS Worldwide Express. 2010 electronic tax filing Amendments to organizing documents required. 2010 electronic tax filing   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. 2010 electronic tax filing If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. 2010 electronic tax filing Extensions of time for filing. 2010 electronic tax filing   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. 2010 electronic tax filing Automatic 12-month extension. 2010 electronic tax filing Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. 2010 electronic tax filing To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. 2010 electronic tax filing 9100-2. 2010 electronic tax filing ” Discretionary extensions. 2010 electronic tax filing An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. 2010 electronic tax filing How to show reasonable action and good faith. 2010 electronic tax filing   An organization acted reasonably and showed good faith if at least one of the following is true. 2010 electronic tax filing The organization requests relief before its failure to file is discovered by the IRS. 2010 electronic tax filing The organization failed to file because of intervening events beyond its control. 2010 electronic tax filing The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. 2010 electronic tax filing The organization reasonably relied upon the written advice of the IRS. 2010 electronic tax filing The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. 2010 electronic tax filing An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. 2010 electronic tax filing Not acting reasonably and in good faith. 2010 electronic tax filing   An organization has not acted reasonably and in good faith under the following circumstances. 2010 electronic tax filing It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. 2010 electronic tax filing It was informed of the requirement to file and related tax consequences, but chose not to file. 2010 electronic tax filing It uses hindsight in requesting relief. 2010 electronic tax filing The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. 2010 electronic tax filing Prejudicing the interest of the Government. 2010 electronic tax filing   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. 2010 electronic tax filing Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. 2010 electronic tax filing The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. 2010 electronic tax filing The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. 2010 electronic tax filing Procedure for requesting extension. 2010 electronic tax filing   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. 2010 electronic tax filing A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. 2010 electronic tax filing Any documents relevant to the application. 2010 electronic tax filing An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. 2010 electronic tax filing If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. 2010 electronic tax filing This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. 2010 electronic tax filing ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. 2010 electronic tax filing This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. 2010 electronic tax filing The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. 2010 electronic tax filing These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. 2010 electronic tax filing ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. 2010 electronic tax filing The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. 2010 electronic tax filing The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. 2010 electronic tax filing   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. 2010 electronic tax filing Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. 2010 electronic tax filing More information. 2010 electronic tax filing   For more information about these procedures, see Regulations sections 301. 2010 electronic tax filing 9100-1, 301. 2010 electronic tax filing 9100-2, 301. 2010 electronic tax filing 9100-3, Revenue Procedure 2013-4, section 6. 2010 electronic tax filing 04, 2013-1 I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 126, and Revenue Procedure 2013-8, 2013-1 I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 237. 2010 electronic tax filing See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. 2010 electronic tax filing Notification from the IRS. 2010 electronic tax filing   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. 2010 electronic tax filing Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. 2010 electronic tax filing These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. 2010 electronic tax filing Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). 2010 electronic tax filing These organizations are exempt automatically if they meet the requirements of section 501(c)(3). 2010 electronic tax filing Filing Form 1023 to establish exemption. 2010 electronic tax filing   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. 2010 electronic tax filing By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. 2010 electronic tax filing A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. 2010 electronic tax filing Private foundations. 2010 electronic tax filing   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. 2010 electronic tax filing Gross receipts test. 2010 electronic tax filing   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. 2010 electronic tax filing   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. 2010 electronic tax filing For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. 2010 electronic tax filing The organization must file Form 1023 within 90 days after the end of its second tax year. 2010 electronic tax filing   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. 2010 electronic tax filing However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. 2010 electronic tax filing Example. 2010 electronic tax filing   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. 2010 electronic tax filing It was incorporated on January 1, 2009, and files returns on a calendar-year basis. 2010 electronic tax filing It did not file a Form 1023. 2010 electronic tax filing The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. 2010 electronic tax filing Therefore, it did not have to file Form 1023 and is exempt for those years. 2010 electronic tax filing However, for 2010, 2011, and 2012 the total gross receipts were $15,900. 2010 electronic tax filing Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. 2010 electronic tax filing If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. 2010 electronic tax filing The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. 2010 electronic tax filing   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. 2010 electronic tax filing See the procedures for this extension discussed earlier. 2010 electronic tax filing Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. 2010 electronic tax filing This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. 2010 electronic tax filing Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. 2010 electronic tax filing These conditions for exemption are referred to as the organizational test. 2010 electronic tax filing Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. 2010 electronic tax filing Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). 2010 electronic tax filing The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. 2010 electronic tax filing Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. 2010 electronic tax filing Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. 2010 electronic tax filing In interpreting an organization's articles, the law of the state where the organization was created is controlling. 2010 electronic tax filing If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. 2010 electronic tax filing The following are examples illustrating the organizational test. 2010 electronic tax filing Example 1. 2010 electronic tax filing Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). 2010 electronic tax filing These articles appropriately limit the organization's purposes. 2010 electronic tax filing The organization meets the organizational test. 2010 electronic tax filing Example 2. 2010 electronic tax filing An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. 2010 electronic tax filing The organization will not be properly limited as to its purposes since all research is not scientific. 2010 electronic tax filing The organization does not meet the organizational test. 2010 electronic tax filing Example 3. 2010 electronic tax filing An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). 2010 electronic tax filing The organization meets the organizational test. 2010 electronic tax filing Example 4. 2010 electronic tax filing If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. 2010 electronic tax filing Example 5. 2010 electronic tax filing If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. 2010 electronic tax filing On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. 2010 electronic tax filing Example 6. 2010 electronic tax filing If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. 2010 electronic tax filing Such purposes are vague and may be accomplished other than in an exempt manner. 2010 electronic tax filing Example 7. 2010 electronic tax filing A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. 2010 electronic tax filing A hospital may or may not be exempt depending on the manner in which it is operated. 2010 electronic tax filing Example 8. 2010 electronic tax filing An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. 2010 electronic tax filing Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. 2010 electronic tax filing This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. 2010 electronic tax filing If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. 2010 electronic tax filing Dedication. 2010 electronic tax filing   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. 2010 electronic tax filing Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. 2010 electronic tax filing Distribution. 2010 electronic tax filing   Revenue Procedure 82-2, 1982-1 C. 2010 electronic tax filing B. 2010 electronic tax filing 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. 2010 electronic tax filing The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. 2010 electronic tax filing   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. 2010 electronic tax filing Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. 2010 electronic tax filing Sample articles of organization. 2010 electronic tax filing   See sample articles of organization in the Appendix in the back of this publication. 2010 electronic tax filing Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. 2010 electronic tax filing In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. 2010 electronic tax filing You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. 2010 electronic tax filing If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. 2010 electronic tax filing See also Private Schools , discussed later. 2010 electronic tax filing Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. 2010 electronic tax filing Advocacy of a position. 2010 electronic tax filing   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. 2010 electronic tax filing The mere presentation of unsupported opinion is not educational. 2010 electronic tax filing Method not educational. 2010 electronic tax filing   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). 2010 electronic tax filing The following factors may indicate that the method is not educational. 2010 electronic tax filing The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. 2010 electronic tax filing The facts that purport to support the viewpoint are distorted. 2010 electronic tax filing The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. 2010 electronic tax filing The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. 2010 electronic tax filing   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. 2010 electronic tax filing Qualifying organizations. 2010 electronic tax filing   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. 2010 electronic tax filing College book stores, cafeterias, restaurants, etc. 2010 electronic tax filing   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. 2010 electronic tax filing Alumni association. 2010 electronic tax filing   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. 2010 electronic tax filing If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . 2010 electronic tax filing Athletic organization. 2010 electronic tax filing   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. 2010 electronic tax filing If it is not so engaged, your organization may be exempt as a social club described in chapter 4. 2010 electronic tax filing Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. 2010 electronic tax filing If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. 2010 electronic tax filing Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. 2010 electronic tax filing The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. 2010 electronic tax filing (This information also must be projected, so far as may be feasible, for the next academic year. 2010 electronic tax filing ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. 2010 electronic tax filing A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. 2010 electronic tax filing A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. 2010 electronic tax filing The public school district and county in which the school is located. 2010 electronic tax filing How to determine racial composition. 2010 electronic tax filing   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. 2010 electronic tax filing Nevertheless, a statement of the method by which the racial composition was determined must be supplied. 2010 electronic tax filing The identity of individual students or members of the faculty and administrative staff should not be included with this information. 2010 electronic tax filing   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. 2010 electronic tax filing Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. 2010 electronic tax filing Also, the school must circulate information that clearly states the school's admission policies. 2010 electronic tax filing A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. 2010 electronic tax filing The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. 2010 electronic tax filing The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. 2010 electronic tax filing Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. 2010 electronic tax filing A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. 2010 electronic tax filing A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. 2010 electronic tax filing Policy statement. 2010 electronic tax filing   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. 2010 electronic tax filing Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. 2010 electronic tax filing Publicity requirement. 2010 electronic tax filing   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. 2010 electronic tax filing Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. 2010 electronic tax filing To satisfy this requirement, the school must use one of the following two methods. 2010 electronic tax filing Method one. 2010 electronic tax filing   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. 2010 electronic tax filing Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. 2010 electronic tax filing When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. 2010 electronic tax filing If this method is used, the notice must meet the following printing requirements. 2010 electronic tax filing It must appear in a section of the newspaper likely to be read by prospective students and their families. 2010 electronic tax filing It must occupy at least 3 column inches. 2010 electronic tax filing It must have its title printed in at least 12 point bold face type. 2010 electronic tax filing It must have the remaining text printed in at least 8 point type. 2010 electronic tax filing The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. 2010 electronic tax filing It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. 2010 electronic tax filing   Method two. 2010 electronic tax filing   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. 2010 electronic tax filing If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. 2010 electronic tax filing In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. 2010 electronic tax filing The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. 2010 electronic tax filing Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. 2010 electronic tax filing Exceptions. 2010 electronic tax filing   The publicity requirements will not apply in the following situations. 2010 electronic tax filing First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. 2010 electronic tax filing These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. 2010 electronic tax filing If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. 2010 electronic tax filing Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . 2010 electronic tax filing   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. 2010 electronic tax filing The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. 2010 electronic tax filing   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. 2010 electronic tax filing Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. 2010 electronic tax filing   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. 2010 electronic tax filing The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. 2010 electronic tax filing In this regard, it is each school's responsibility to determine whether either of the exceptions applies. 2010 electronic tax filing Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. 2010 electronic tax filing Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. 2010 electronic tax filing Facilities and programs. 2010 electronic tax filing   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. 2010 electronic tax filing Scholarship and loan programs. 2010 electronic tax filing   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. 2010 electronic tax filing This must be known throughout the general community being served by the school and should be referred to in its publicity. 2010 electronic tax filing Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. 2010 electronic tax filing Certification. 2010 electronic tax filing   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. 2010 electronic tax filing   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. 2010 electronic tax filing Recordkeeping requirements. 2010 electronic tax filing With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. 2010 electronic tax filing Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. 2010 electronic tax filing Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. 2010 electronic tax filing Copies of all materials used by or on behalf of the school to solicit contributions. 2010 electronic tax filing Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. 2010 electronic tax filing (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. 2010 electronic tax filing ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. 2010 electronic tax filing However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. 2010 electronic tax filing The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. 2010 electronic tax filing Similarly, the IRS does not require a school to keep records prohibited under state or federal law. 2010 electronic tax filing Exceptions. 2010 electronic tax filing   The school does not have to independently maintain these records for IRS use if both of the following are true. 2010 electronic tax filing Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. 2010 electronic tax filing The school maintains copies of these reports from which this information is readily obtainable. 2010 electronic tax filing If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. 2010 electronic tax filing Failure to maintain records. 2010 electronic tax filing   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. 2010 electronic tax filing Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. 2010 electronic tax filing However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. 2010 electronic tax filing Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). 2010 electronic tax filing Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. 2010 electronic tax filing Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. 2010 electronic tax filing Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. 2010 electronic tax filing The rest of this section contains a description of the information to be provided by certain specific organizations. 2010 electronic tax filing This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. 2010 electronic tax filing Each of the following organizations must submit the information described. 2010 electronic tax filing Charitable organization supporting education. 2010 electronic tax filing   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. 2010 electronic tax filing Scholarships. 2010 electronic tax filing   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. 2010 electronic tax filing Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. 2010 electronic tax filing How and by whom the recipients are or will be selected. 2010 electronic tax filing If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. 2010 electronic tax filing If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. 2010 electronic tax filing A copy of the scholarship application form and any brochures or literature describing the scholarship program. 2010 electronic tax filing Hospital. 2010 electronic tax filing   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. 2010 electronic tax filing   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. 2010 electronic tax filing You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. 2010 electronic tax filing Submit also an appraisal showing the fair rental value of the rented space. 2010 electronic tax filing Clinic. 2010 electronic tax filing   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. 2010 electronic tax filing Home for the aged. 2010 electronic tax filing   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. 2010 electronic tax filing Community nursing bureau. 2010 electronic tax filing   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. 2010 electronic tax filing Organization providing loans. 2010 electronic tax filing   If you make, or will make, loans for charitable and educational purposes, submit the following information. 2010 electronic tax filing An explanation of the circumstances under which such loans are, or will be, made. 2010 electronic tax filing Criteria for selection, including the rules of eligibility. 2010 electronic tax filing How and by whom the recipients are or will be selected. 2010 electronic tax filing Manner of repayment of the loan. 2010 electronic tax filing Security required, if any. 2010 electronic tax filing Interest charged, if any, and when payable. 2010 electronic tax filing Copies in duplicate of the loan application and any brochures or literature describing the loan program. 2010 electronic tax filing Public-interest law firms. 2010 electronic tax filing   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. 2010 electronic tax filing How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. 2010 electronic tax filing Whether the organization will accept fees for its services. 2010 electronic tax filing A description of the cases litigated or to be litigated and how they benefit the public generally. 2010 electronic tax filing Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. 2010 electronic tax filing Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. 2010 electronic tax filing Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. 2010 electronic tax filing Acceptance of attorneys' fees. 2010 electronic tax filing   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. 2010 electronic tax filing Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. 2010 electronic tax filing   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. 2010 electronic tax filing All fee awards must be paid to the organization and not to its individual staff attorneys. 2010 electronic tax filing Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. 2010 electronic tax filing Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. 2010 electronic tax filing   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. 2010 electronic tax filing   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. 2010 electronic tax filing Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. 2010 electronic tax filing That the particular religious beliefs of the organization are truly and sincerely held. 2010 electronic tax filing That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. 2010 electronic tax filing Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. 2010 electronic tax filing If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. 2010 electronic tax filing Churches. 2010 electronic tax filing   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. 2010 electronic tax filing In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. 2010 electronic tax filing   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. 2010 electronic tax filing Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. 2010 electronic tax filing The IRS considers the facts and circumstances of each organization applying for church status. 2010 electronic tax filing Convention or association of churches. 2010 electronic tax filing   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. 2010 electronic tax filing Integrated auxiliaries. 2010 electronic tax filing   An organization is an integrated auxiliary of a church if all the following are true. 2010 electronic tax filing The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). 2010 electronic tax filing It is affiliated with a church or a convention or association of churches. 2010 electronic tax filing It is internally supported. 2010 electronic tax filing An organization is internally supported unless both of the following are true. 2010 electronic tax filing It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). 2010 electronic tax filing It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. 2010 electronic tax filing Special rule. 2010 electronic tax filing   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. 2010 electronic tax filing   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. 2010 electronic tax filing   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. 2010 electronic tax filing Scientific Organizations You must show that your organization's research will be carried on in the public interest. 2010 electronic tax filing Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. 2010 electronic tax filing Aiding in the scientific education of college or university students. 2010 electronic tax filing Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th
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The 2010 Electronic Tax Filing

2010 electronic tax filing Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. 2010 electronic tax filing Employee-owners. 2010 electronic tax filing Other rules. 2010 electronic tax filing Other rules. 2010 electronic tax filing Property Exchanged for StockNonqualified preferred stock. 2010 electronic tax filing Liabilities. 2010 electronic tax filing Election to reduce basis. 2010 electronic tax filing Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. 2010 electronic tax filing S. 2010 electronic tax filing Real Property Interest Accounting MethodsSection 481(a) adjustment. 2010 electronic tax filing Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. 2010 electronic tax filing Business formed before 1997. 2010 electronic tax filing   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. 2010 electronic tax filing Business formed after 1996. 2010 electronic tax filing   The following businesses formed after 1996 are taxed as corporations. 2010 electronic tax filing A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. 2010 electronic tax filing A business formed under a state law that refers to it as a joint-stock company or joint-stock association. 2010 electronic tax filing An insurance company. 2010 electronic tax filing Certain banks. 2010 electronic tax filing A business wholly owned by a state or local government. 2010 electronic tax filing A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 2010 electronic tax filing Certain foreign businesses. 2010 electronic tax filing Any other business that elects to be taxed as a corporation. 2010 electronic tax filing For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. 2010 electronic tax filing For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. 2010 electronic tax filing S corporations. 2010 electronic tax filing   Some corporations may meet the qualifications for electing to be S corporations. 2010 electronic tax filing For information on S corporations, see the instructions for Form 1120S, U. 2010 electronic tax filing S. 2010 electronic tax filing Income Tax Return for an S Corporation. 2010 electronic tax filing Personal service corporations. 2010 electronic tax filing   A corporation is a personal service corporation if it meets all of the following requirements. 2010 electronic tax filing Its principal activity during the “testing period” is performing personal services (defined later). 2010 electronic tax filing Generally, the testing period for any tax year is the prior tax year. 2010 electronic tax filing If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. 2010 electronic tax filing Its employee-owners substantially perform the services in (1), above. 2010 electronic tax filing This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. 2010 electronic tax filing Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. 2010 electronic tax filing Personal services. 2010 electronic tax filing   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. 2010 electronic tax filing Employee-owners. 2010 electronic tax filing   A person is an employee-owner of a personal service corporation if both of the following apply. 2010 electronic tax filing He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. 2010 electronic tax filing He or she owns any stock in the corporation at any time during the testing period. 2010 electronic tax filing Other rules. 2010 electronic tax filing   For other rules that apply to personal service corporations see Accounting Periods, later. 2010 electronic tax filing Closely held corporations. 2010 electronic tax filing   A corporation is closely held if all of the following apply. 2010 electronic tax filing It is not a personal service corporation. 2010 electronic tax filing At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. 2010 electronic tax filing “Individual” includes certain trusts and private foundations. 2010 electronic tax filing Other rules. 2010 electronic tax filing   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. 2010 electronic tax filing Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. 2010 electronic tax filing This rule applies both to individuals and to groups who transfer property to a corporation. 2010 electronic tax filing It also applies whether the corporation is being formed or is already operating. 2010 electronic tax filing It does not apply in the following situations. 2010 electronic tax filing The corporation is an investment company. 2010 electronic tax filing You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. 2010 electronic tax filing The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. 2010 electronic tax filing Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. 2010 electronic tax filing For more information, see section 1. 2010 electronic tax filing 351-3 of the Regulations. 2010 electronic tax filing Control of a corporation. 2010 electronic tax filing   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. 2010 electronic tax filing Example 1. 2010 electronic tax filing You and Bill Jones buy property for $100,000. 2010 electronic tax filing You both organize a corporation when the property has a fair market value of $300,000. 2010 electronic tax filing You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. 2010 electronic tax filing No gain is recognized by you, Bill, or the corporation. 2010 electronic tax filing Example 2. 2010 electronic tax filing You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. 2010 electronic tax filing This represents only 75% of each class of stock of the corporation. 2010 electronic tax filing The other 25% was already issued to someone else. 2010 electronic tax filing You and Bill recognize a taxable gain of $200,000 on the transaction. 2010 electronic tax filing Services rendered. 2010 electronic tax filing   The term property does not include services rendered or to be rendered to the issuing corporation. 2010 electronic tax filing The value of stock received for services is income to the recipient. 2010 electronic tax filing Example. 2010 electronic tax filing You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. 2010 electronic tax filing Right after the exchange, you own 85% of the outstanding stock. 2010 electronic tax filing No gain is recognized on the exchange of property. 2010 electronic tax filing However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. 2010 electronic tax filing Property of relatively small value. 2010 electronic tax filing   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. 2010 electronic tax filing   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. 2010 electronic tax filing Stock received in disproportion to property transferred. 2010 electronic tax filing   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. 2010 electronic tax filing If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. 2010 electronic tax filing It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. 2010 electronic tax filing Money or other property received. 2010 electronic tax filing   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. 2010 electronic tax filing You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. 2010 electronic tax filing The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. 2010 electronic tax filing If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. 2010 electronic tax filing See chapter 3 of Publication 544. 2010 electronic tax filing No loss is recognized. 2010 electronic tax filing Nonqualified preferred stock. 2010 electronic tax filing   Nonqualified preferred stock is treated as property other than stock. 2010 electronic tax filing Generally, it is preferred stock with any of the following features. 2010 electronic tax filing The holder has the right to require the issuer or a related person to redeem or buy the stock. 2010 electronic tax filing The issuer or a related person is required to redeem or buy the stock. 2010 electronic tax filing The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. 2010 electronic tax filing The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. 2010 electronic tax filing For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. 2010 electronic tax filing Liabilities. 2010 electronic tax filing   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. 2010 electronic tax filing There are two exceptions to this treatment. 2010 electronic tax filing If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. 2010 electronic tax filing However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. 2010 electronic tax filing If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. 2010 electronic tax filing For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. 2010 electronic tax filing Example. 2010 electronic tax filing You transfer property to a corporation for stock. 2010 electronic tax filing Immediately after the transfer, you control the corporation. 2010 electronic tax filing You also receive $10,000 in the exchange. 2010 electronic tax filing Your adjusted basis in the transferred property is $20,000. 2010 electronic tax filing The stock you receive has a fair market value (FMV) of $16,000. 2010 electronic tax filing The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. 2010 electronic tax filing Gain is realized as follows. 2010 electronic tax filing FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. 2010 electronic tax filing The recognized gain is limited to $10,000, the cash received. 2010 electronic tax filing Loss on exchange. 2010 electronic tax filing   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. 2010 electronic tax filing For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 2010 electronic tax filing Basis of stock or other property received. 2010 electronic tax filing   The basis of the stock you receive is generally the adjusted basis of the property you transfer. 2010 electronic tax filing Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. 2010 electronic tax filing Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. 2010 electronic tax filing Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. 2010 electronic tax filing    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. 2010 electronic tax filing This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. 2010 electronic tax filing The basis of any other property you receive is its fair market value on the date of the trade. 2010 electronic tax filing Basis of property transferred. 2010 electronic tax filing   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. 2010 electronic tax filing However, the increase for the gain recognized may be limited. 2010 electronic tax filing For more information, see section 362 of the Internal Revenue Code. 2010 electronic tax filing Election to reduce basis. 2010 electronic tax filing   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. 2010 electronic tax filing The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. 2010 electronic tax filing However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. 2010 electronic tax filing    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. 2010 electronic tax filing Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. 2010 electronic tax filing Paid-in capital. 2010 electronic tax filing   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. 2010 electronic tax filing These contributions are not taxable to the corporation. 2010 electronic tax filing Basis. 2010 electronic tax filing   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. 2010 electronic tax filing However, the increase for the gain recognized may be limited. 2010 electronic tax filing For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. 2010 electronic tax filing   The basis of property contributed to capital by a person other than a shareholder is zero. 2010 electronic tax filing   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. 2010 electronic tax filing If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. 2010 electronic tax filing Depreciable property. 2010 electronic tax filing Amortizable property. 2010 electronic tax filing Property subject to cost depletion but not to percentage depletion. 2010 electronic tax filing All other remaining properties. 2010 electronic tax filing   Reduce the basis of property in each category to zero before going on to the next category. 2010 electronic tax filing   There may be more than one piece of property in each category. 2010 electronic tax filing Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. 2010 electronic tax filing The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. 2010 electronic tax filing Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. 2010 electronic tax filing A corporation generally must make estimated tax payments as it earns or receives income during its tax year. 2010 electronic tax filing After the end of the year, the corporation must file an income tax return. 2010 electronic tax filing This section will help you determine when and how to pay and file corporate income taxes. 2010 electronic tax filing For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. 2010 electronic tax filing The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. 2010 electronic tax filing For more information, visit www. 2010 electronic tax filing irs. 2010 electronic tax filing gov/newsroom/article/0,,id=108362. 2010 electronic tax filing 00. 2010 electronic tax filing Income Tax Return This section will help you determine when and how to report a corporation's income tax. 2010 electronic tax filing Who must file. 2010 electronic tax filing   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. 2010 electronic tax filing Which form to file. 2010 electronic tax filing   A corporation generally must file Form 1120, U. 2010 electronic tax filing S. 2010 electronic tax filing Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. 2010 electronic tax filing Certain organizations and entities must file special returns. 2010 electronic tax filing For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. 2010 electronic tax filing Electronic filing. 2010 electronic tax filing   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. 2010 electronic tax filing Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. 2010 electronic tax filing However, in certain instances, these corporations can request a waiver. 2010 electronic tax filing For more information regarding electronic filing, visit www. 2010 electronic tax filing irs. 2010 electronic tax filing gov/efile. 2010 electronic tax filing When to file. 2010 electronic tax filing   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. 2010 electronic tax filing A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. 2010 electronic tax filing A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. 2010 electronic tax filing Example 1. 2010 electronic tax filing A corporation's tax year ends December 31. 2010 electronic tax filing It must file its income tax return by March 15th. 2010 electronic tax filing Example 2. 2010 electronic tax filing A corporation's tax year ends June 30. 2010 electronic tax filing It must file its income tax return by September 15th. 2010 electronic tax filing   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. 2010 electronic tax filing Extension of time to file. 2010 electronic tax filing   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. 2010 electronic tax filing The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. 2010 electronic tax filing   Form 7004 does not extend the time for paying the tax due on the return. 2010 electronic tax filing Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. 2010 electronic tax filing The interest is figured from the original due date of the return to the date of payment. 2010 electronic tax filing   For more information, see the instructions for Form 7004. 2010 electronic tax filing How to pay your taxes. 2010 electronic tax filing   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. 2010 electronic tax filing Electronic Federal Tax Payment System (EFTPS). 2010 electronic tax filing   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). 2010 electronic tax filing For more information on EFTPS and enrollment, visit www. 2010 electronic tax filing eftps. 2010 electronic tax filing gov or call 1-800-555-4477. 2010 electronic tax filing Also see Publication 966, The Secure Way to Pay Your Federal Taxes. 2010 electronic tax filing Note. 2010 electronic tax filing Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. 2010 electronic tax filing Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. 2010 electronic tax filing Do not attach an explanation when the corporation's return is filed. 2010 electronic tax filing See the instructions for your income tax return. 2010 electronic tax filing Late filing of return. 2010 electronic tax filing    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. 2010 electronic tax filing If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. 2010 electronic tax filing The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. 2010 electronic tax filing The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. 2010 electronic tax filing Late payment of tax. 2010 electronic tax filing    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. 2010 electronic tax filing The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. 2010 electronic tax filing Trust fund recovery penalty. 2010 electronic tax filing   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. 2010 electronic tax filing The penalty is the full amount of the unpaid trust fund tax. 2010 electronic tax filing This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. 2010 electronic tax filing   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. 2010 electronic tax filing   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. 2010 electronic tax filing A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. 2010 electronic tax filing   Willfully means voluntarily, consciously, and intentionally. 2010 electronic tax filing A responsible person acts willfully if the person knows the required actions are not taking place. 2010 electronic tax filing   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. 2010 electronic tax filing Other penalties. 2010 electronic tax filing   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. 2010 electronic tax filing See sections 6662, 6662A, and 6663 of the Internal Revenue Code. 2010 electronic tax filing Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. 2010 electronic tax filing If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. 2010 electronic tax filing This section will explain how to avoid this penalty. 2010 electronic tax filing When to pay estimated tax. 2010 electronic tax filing   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 2010 electronic tax filing Example 1. 2010 electronic tax filing Your corporation's tax year ends December 31. 2010 electronic tax filing Installment payments are due on April 15, June 15, September 15, and December 15. 2010 electronic tax filing Example 2. 2010 electronic tax filing Your corporation's tax year ends June 30. 2010 electronic tax filing Installment payments are due on October 15, December 15, March 15, and June 15. 2010 electronic tax filing   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. 2010 electronic tax filing How to figure each required installment. 2010 electronic tax filing   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. 2010 electronic tax filing You will generally use one of the following two methods to figure each required installment. 2010 electronic tax filing You should use the method that yields the smallest installment payments. 2010 electronic tax filing Note. 2010 electronic tax filing In these discussions, “return” generally refers to the corporation's original return. 2010 electronic tax filing However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. 2010 electronic tax filing Method 1. 2010 electronic tax filing   Each required installment is 25% of the income tax the corporation will show on its return for the current year. 2010 electronic tax filing Method 2. 2010 electronic tax filing   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. 2010 electronic tax filing   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). 2010 electronic tax filing Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. 2010 electronic tax filing   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. 2010 electronic tax filing Other methods. 2010 electronic tax filing   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. 2010 electronic tax filing The annualized income installment method. 2010 electronic tax filing The adjusted seasonal installment method. 2010 electronic tax filing Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. 2010 electronic tax filing Refiguring required installments. 2010 electronic tax filing   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. 2010 electronic tax filing An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. 2010 electronic tax filing Underpayment penalty. 2010 electronic tax filing   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. 2010 electronic tax filing The penalty is figured separately for each installment due date. 2010 electronic tax filing The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. 2010 electronic tax filing This is true even if the corporation is due a refund when its return is filed. 2010 electronic tax filing Form 2220. 2010 electronic tax filing   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. 2010 electronic tax filing   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. 2010 electronic tax filing The amount of the underpayment. 2010 electronic tax filing The period during which the underpayment was due and unpaid. 2010 electronic tax filing The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. 2010 electronic tax filing   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. 2010 electronic tax filing However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. 2010 electronic tax filing The annualized income installment method was used to figure any required installment. 2010 electronic tax filing The adjusted seasonal installment method was used to figure any required installment. 2010 electronic tax filing The corporation is a large corporation figuring its first required installment based on the prior year's tax. 2010 electronic tax filing How to pay estimated tax. 2010 electronic tax filing   A corporation is generally required to use EFTPS to pay its taxes. 2010 electronic tax filing See Electronic Federal Tax Payment System (EFTPS), earlier. 2010 electronic tax filing Also see the Instructions for Form 1120-W. 2010 electronic tax filing Quick refund of overpayments. 2010 electronic tax filing   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. 2010 electronic tax filing Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. 2010 electronic tax filing A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. 2010 electronic tax filing Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. 2010 electronic tax filing File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. 2010 electronic tax filing Do not file Form 4466 before the end of the corporation's tax year. 2010 electronic tax filing An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. 2010 electronic tax filing The IRS will act on the form within 45 days from the date you file it. 2010 electronic tax filing U. 2010 electronic tax filing S. 2010 electronic tax filing Real Property Interest If a domestic corporation acquires a U. 2010 electronic tax filing S. 2010 electronic tax filing real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. 2010 electronic tax filing The amount paid includes cash, the fair market value of other property, and any assumed liability. 2010 electronic tax filing If a domestic corporation distributes a U. 2010 electronic tax filing S. 2010 electronic tax filing real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. 2010 electronic tax filing A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. 2010 electronic tax filing For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. 2010 electronic tax filing S. 2010 electronic tax filing Withholding Tax Return for Dispositions by Foreign Persons of U. 2010 electronic tax filing S. 2010 electronic tax filing Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. 2010 electronic tax filing S. 2010 electronic tax filing Real Property Interests. 2010 electronic tax filing Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. 2010 electronic tax filing Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. 2010 electronic tax filing In all cases, the method used must clearly show taxable income. 2010 electronic tax filing Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. 2010 electronic tax filing Accrual method. 2010 electronic tax filing   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. 2010 electronic tax filing A corporation engaged in farming operations also must use the accrual method. 2010 electronic tax filing   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. 2010 electronic tax filing However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. 2010 electronic tax filing   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. 2010 electronic tax filing   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. 2010 electronic tax filing   There are exceptions to the economic performance rule for certain items, including recurring expenses. 2010 electronic tax filing See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. 2010 electronic tax filing Nonaccrual experience method. 2010 electronic tax filing   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. 2010 electronic tax filing   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. 2010 electronic tax filing Percentage of completion method. 2010 electronic tax filing   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. 2010 electronic tax filing Mark-to-market accounting method. 2010 electronic tax filing   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. 2010 electronic tax filing Under this method any security held by a dealer as inventory must be included in inventory at its FMV. 2010 electronic tax filing Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. 2010 electronic tax filing Any gain or loss must be taken into account in determining gross income. 2010 electronic tax filing The gain or loss taken into account is treated as ordinary gain or loss. 2010 electronic tax filing   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. 2010 electronic tax filing Change in accounting method. 2010 electronic tax filing   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). 2010 electronic tax filing The corporation must file Form 3115, Application for Change in Accounting Method. 2010 electronic tax filing For more information, see Form 3115 and Publication 538. 2010 electronic tax filing Section 481(a) adjustment. 2010 electronic tax filing   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. 2010 electronic tax filing The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. 2010 electronic tax filing However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. 2010 electronic tax filing The corporation must complete the appropriate lines of Form 3115 to make the election. 2010 electronic tax filing See the Instructions for Form 3115. 2010 electronic tax filing Accounting Periods A corporation must figure its taxable income on the basis of a tax year. 2010 electronic tax filing A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. 2010 electronic tax filing Generally, corporations can use either a calendar year or a fiscal year as its tax year. 2010 electronic tax filing Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. 2010 electronic tax filing For more information, see Publication 538. 2010 electronic tax filing Personal service corporation. 2010 electronic tax filing   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. 2010 electronic tax filing See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. 2010 electronic tax filing Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. 2010 electronic tax filing   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. 2010 electronic tax filing See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. 2010 electronic tax filing Change of tax year. 2010 electronic tax filing   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. 2010 electronic tax filing However, under certain conditions, a corporation can change its tax year without getting the consent. 2010 electronic tax filing For more information, see Form 1128 and Publication 538. 2010 electronic tax filing Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. 2010 electronic tax filing Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. 2010 electronic tax filing Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. 2010 electronic tax filing The corporation should keep copies of all filed returns. 2010 electronic tax filing They help in preparing future and amended returns and in the calculation of earnings and profits. 2010 electronic tax filing Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. 2010 electronic tax filing However, the following special provisions apply only to corporations. 2010 electronic tax filing Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. 2010 electronic tax filing However, a corporation can elect to deduct a limited amount of start-up or organizational costs. 2010 electronic tax filing Any costs not deducted can be amortized. 2010 electronic tax filing Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. 2010 electronic tax filing Organizational costs are the direct costs of creating the corporation. 2010 electronic tax filing For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. 2010 electronic tax filing Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. 2010 electronic tax filing Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. 2010 electronic tax filing Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. 2010 electronic tax filing If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. 2010 electronic tax filing These rules also deny the deduction of losses on the sale or exchange of property between related persons. 2010 electronic tax filing Related persons. 2010 electronic tax filing   For purposes of this rule, the following persons are related to a corporation. 2010 electronic tax filing Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). 2010 electronic tax filing An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. 2010 electronic tax filing A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. 2010 electronic tax filing An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. 2010 electronic tax filing A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. 2010 electronic tax filing Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. 2010 electronic tax filing Ownership of stock. 2010 electronic tax filing   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. 2010 electronic tax filing Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. 2010 electronic tax filing An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. 2010 electronic tax filing Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. 2010 electronic tax filing Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. 2010 electronic tax filing To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. 2010 electronic tax filing But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. 2010 electronic tax filing Reallocation of income and deductions. 2010 electronic tax filing   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. 2010 electronic tax filing Complete liquidations. 2010 electronic tax filing   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. 2010 electronic tax filing More information. 2010 electronic tax filing   For more information about the related person rules, see Publication 544. 2010 electronic tax filing Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. 2010 electronic tax filing If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. 2010 electronic tax filing Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. 2010 electronic tax filing A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. 2010 electronic tax filing A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. 2010 electronic tax filing For more information regarding the election, see Form 8902. 2010 electronic tax filing Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. 2010 electronic tax filing The deduction is allowed for the year in which the property is placed in service. 2010 electronic tax filing A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. 2010 electronic tax filing For more information, see section 179C of the Internal Revenue Code and the related Regulations. 2010 electronic tax filing Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). 2010 electronic tax filing A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. 2010 electronic tax filing For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. 2010 electronic tax filing Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. 2010 electronic tax filing In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. 2010 electronic tax filing 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. 2010 electronic tax filing The deduction is limited to $1. 2010 electronic tax filing 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. 2010 electronic tax filing Other rules and limitations apply. 2010 electronic tax filing The corporation must reduce the basis of any property by any deduction taken. 2010 electronic tax filing The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. 2010 electronic tax filing For more information, see section 179D of the Internal Revenue Code. 2010 electronic tax filing Also see Notice 2006-52, 2006-26 I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 1175, clarified and amplified by Notice 2008-40, 2008-14 I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 725, and any successor. 2010 electronic tax filing Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. 2010 electronic tax filing These items are known as corporate preference items and they include the following. 2010 electronic tax filing Gain on the disposition of section 1250 property. 2010 electronic tax filing For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. 2010 electronic tax filing Percentage depletion for iron ore and coal (including lignite). 2010 electronic tax filing For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. 2010 electronic tax filing Amortization of pollution control facilities. 2010 electronic tax filing For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. 2010 electronic tax filing Mineral exploration and development costs. 2010 electronic tax filing For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. 2010 electronic tax filing For more information on corporate preference items, see section 291 of the Internal Revenue Code. 2010 electronic tax filing Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. 2010 electronic tax filing This section discusses the general rules that apply. 2010 electronic tax filing The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. 2010 electronic tax filing For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. 2010 electronic tax filing Dividends from domestic corporations. 2010 electronic tax filing   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. 2010 electronic tax filing If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. 2010 electronic tax filing Ownership. 2010 electronic tax filing   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. 2010 electronic tax filing Small business investment companies. 2010 electronic tax filing   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. 2010 electronic tax filing Dividends from regulated investment companies. 2010 electronic tax filing   Regulated investment company dividends received are subject to certain limits. 2010 electronic tax filing Capital gain dividends received from a regulated investment company do not qualify for the deduction. 2010 electronic tax filing For more information, see section 854 of the Internal Revenue Code. 2010 electronic tax filing No deduction allowed for certain dividends. 2010 electronic tax filing   Corporations cannot take a deduction for dividends received from the following entities. 2010 electronic tax filing A real estate investment trust (REIT). 2010 electronic tax filing A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. 2010 electronic tax filing A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. 2010 electronic tax filing Ex-dividend means the holder has no rights to the dividend. 2010 electronic tax filing A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. 2010 electronic tax filing Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. 2010 electronic tax filing Dividends on deposits. 2010 electronic tax filing   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. 2010 electronic tax filing They do not qualify for this deduction. 2010 electronic tax filing Limit on deduction for dividends. 2010 electronic tax filing   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). 2010 electronic tax filing Figuring the limit. 2010 electronic tax filing   In figuring the limit, determine taxable income without the following items. 2010 electronic tax filing The net operating loss deduction. 2010 electronic tax filing The domestic production activities deduction. 2010 electronic tax filing The deduction for dividends received. 2010 electronic tax filing Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). 2010 electronic tax filing Any capital loss carryback to the tax year. 2010 electronic tax filing Effect of net operating loss. 2010 electronic tax filing   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. 2010 electronic tax filing To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. 2010 electronic tax filing Example 1. 2010 electronic tax filing A corporation loses $25,000 from operations. 2010 electronic tax filing It receives $100,000 in dividends from a 20%-owned corporation. 2010 electronic tax filing Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. 2010 electronic tax filing If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). 2010 electronic tax filing Therefore, the 80% of taxable income limit does not apply. 2010 electronic tax filing The corporation can deduct the full $80,000. 2010 electronic tax filing Example 2. 2010 electronic tax filing Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. 2010 electronic tax filing Its taxable income is $85,000 before the deduction for dividends received. 2010 electronic tax filing After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. 2010 electronic tax filing Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). 2010 electronic tax filing Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. 2010 electronic tax filing The nontaxed part is any dividends-received deduction allowable for the dividends. 2010 electronic tax filing Extraordinary dividend. 2010 electronic tax filing   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. 2010 electronic tax filing The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. 2010 electronic tax filing Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. 2010 electronic tax filing Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. 2010 electronic tax filing Disqualified preferred stock. 2010 electronic tax filing   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. 2010 electronic tax filing   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. 2010 electronic tax filing The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. 2010 electronic tax filing The issue price of the stock exceeds its liquidation rights or stated redemption price. 2010 electronic tax filing The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. 2010 electronic tax filing   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. 2010 electronic tax filing More information. 2010 electronic tax filing   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. 2010 electronic tax filing Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. 2010 electronic tax filing A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2010 electronic tax filing A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. 2010 electronic tax filing Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 2010 electronic tax filing Foregone interest. 2010 electronic tax filing   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 2010 electronic tax filing See Below-market loans, in chapter 4 of Publication 535 for more information. 2010 electronic tax filing Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. 2010 electronic tax filing The contribution is deductible if made to, or for the use of, a qualified organization. 2010 electronic tax filing For more information on qualified organizations, see Publication 526, Charitable Contributions. 2010 electronic tax filing Also see, Exempt Organizations Select Check (EO Select Check) at www. 2010 electronic tax filing irs. 2010 electronic tax filing gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. 2010 electronic tax filing Note. 2010 electronic tax filing You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. 2010 electronic tax filing Cash method corporation. 2010 electronic tax filing   A corporation using the cash method of accounting deducts contributions in the tax year paid. 2010 electronic tax filing Accrual method corporation. 2010 electronic tax filing   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. 2010 electronic tax filing Make the choice by reporting the contribution on the corporation's return for the tax year. 2010 electronic tax filing A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. 2010 electronic tax filing The declaration must include the date the resolution was adopted. 2010 electronic tax filing Limitations on deduction. 2010 electronic tax filing   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. 2010 electronic tax filing Figure taxable income for this purpose without the following. 2010 electronic tax filing The deduction for charitable contributions. 2010 electronic tax filing The dividends-received deduction. 2010 electronic tax filing The deduction allowed under section 249 of the Internal Revenue Code. 2010 electronic tax filing The domestic production activities deduction. 2010 electronic tax filing Any net operating loss carryback to the tax year. 2010 electronic tax filing Any capital loss carryback to the tax year. 2010 electronic tax filing Farmers and ranchers. 2010 electronic tax filing    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. 2010 electronic tax filing Carryover of excess contributions. 2010 electronic tax filing   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. 2010 electronic tax filing You lose any excess not used within that period. 2010 electronic tax filing For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. 2010 electronic tax filing Any excess not used in 2015 is lost. 2010 electronic tax filing Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). 2010 electronic tax filing You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. 2010 electronic tax filing Cash contributions. 2010 electronic tax filing   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. 2010 electronic tax filing The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. 2010 electronic tax filing Keep the record of the contribution with the other corporate records. 2010 electronic tax filing Do not attach the records to the corporation's return. 2010 electronic tax filing For more information on cash contributions, see Publication 526. 2010 electronic tax filing Gifts of $250 or more. 2010 electronic tax filing   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. 2010 electronic tax filing The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. 2010 electronic tax filing The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. 2010 electronic tax filing Keep the acknowledgement with other corporate records. 2010 electronic tax filing Do not attach the acknowledgement to the return. 2010 electronic tax filing Contributions of property other than cash. 2010 electronic tax filing   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. 2010 electronic tax filing In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. 2010 electronic tax filing   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. 2010 electronic tax filing For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. 2010 electronic tax filing   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. 2010 electronic tax filing A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. 2010 electronic tax filing The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. 2010 electronic tax filing   See Form 8283 for more information. 2010 electronic tax filing Qualified conservation contributions. 2010 electronic tax filing   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. 2010 electronic tax filing For more information, see section 170(h) of the Internal Revenue Code. 2010 electronic tax filing Contributions of used vehicles. 2010 electronic tax filing   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. 2010 electronic tax filing The deduction is limited, and other special rules apply. 2010 electronic tax filing For more information, see Publication 526. 2010 electronic tax filing Reduction for contributions of certain property. 2010 electronic tax filing   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. 2010 electronic tax filing   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. 2010 electronic tax filing Larger deduction. 2010 electronic tax filing   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. 2010 electronic tax filing This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. 2010 electronic tax filing Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. 2010 electronic tax filing The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. 2010 electronic tax filing Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. 2010 electronic tax filing Contributions to organizations conducting lobbying activities. 2010 electronic tax filing   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. 2010 electronic tax filing More information. 2010 electronic tax filing   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. 2010 electronic tax filing Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. 2010 electronic tax filing In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. 2010 electronic tax filing Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. 2010 electronic tax filing A capital loss is carried to other years in the following order. 2010 electronic tax filing 3 years prior to the loss year. 2010 electronic tax filing 2 years prior to the loss year. 2010 electronic tax filing 1 year prior to the loss year. 2010 electronic tax filing Any loss remaining is carried forward for 5 years. 2010 electronic tax filing When you carry a net capital loss to another tax year, treat it as a short-term loss. 2010 electronic tax filing It does not retain its original identity as long term or short term. 2010 electronic tax filing Example. 2010 electronic tax filing A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. 2010 electronic tax filing The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. 2010 electronic tax filing The corporation treats this $6,000 as a short-term loss when carried back or forward. 2010 electronic tax filing The corporation carries the $6,000 short-term loss back 3 years. 2010 electronic tax filing In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. 2010 electronic tax filing It subtracts the $6,000 short-term loss first from the net short-term gain. 2010 electronic tax filing This results in a net capital gain for year 1 of $7,000. 2010 electronic tax filing This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. 2010 electronic tax filing S corporation status. 2010 electronic tax filing   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. 2010 electronic tax filing Rules for carryover and carryback. 2010 electronic tax filing   When carrying a capital loss from one year to another, the following rules apply. 2010 electronic tax filing When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. 2010 electronic tax filing In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. 2010 electronic tax filing If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. 2010 electronic tax filing You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. 2010 electronic tax filing Refunds. 2010 electronic tax filing   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. 2010 electronic tax filing If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. 2010 electronic tax filing S. 2010 electronic tax filing Corporation Income Tax Return, to apply for a refund. 2010 electronic tax filing Form 1139. 2010 electronic tax filing    A corporation can get a refund faster by using Form 1139. 2010 electronic tax filing It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. 2010 electronic tax filing Form 1120X. 2010 electronic tax filing   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. 2010 electronic tax filing The corporation must file the Form 1120X within 3 years of the due date, includin